"This move up has caught everybody off guard because demand has been stronger than the increase in milk production," says one dairy analyst.

March 17 (Bloomberg) -- Milk futures in Chicago jumped to an all-time high as surging U.S. dairy exports depleted supplies available for domestic consumers.

Shippers sold 162,999 metric tons of milk powder, cheese, butterfat and whey in January, up 19 percent from a year earlier, according to the latest data from the U.S. Dairy Export Council. Almost 15 percent of milk production went to exported goods, up from 12 percent a year earlier, the group said. Cheese shipments climbed 46 percent.

A rise in global demand for U.S. dairy goods comes as a drought threatens output in California, the nation’s top producer. Milk prices jumped 21 percent this year, signaling higher costs for consumers and restaurants such as Domino’s Pizza Inc. and Potbelly Corp., while the cost of cheddar cheese also reached a record today.

"Exports of cheese and dry milk products have been very strong," Aishwarya Deep Govil, a risk management adviser for Rice Dairy LLC in Chicago, said in a telephone interview. "This move up has caught everybody off guard because demand has been stronger than the increase in milk production."

Class III milk futures for March delivery rose 0.9 percent to settle at $23.49 for 100 pounds at 1:10 p.m. in Chicago after touching a record $23.61. April futures rose the 75-cent maximum allowed by the exchange to $23.12.

Food Costs

World food prices in February posted the biggest gain in 19 months, and dairy costs reached a record, according to the United Nations. U.S. milk production rose 0.9 percent to 17.255 billion pounds in January from a year earlier, the Department of Agriculture said last month. The government is scheduled to release the February production report on March 19.

Spot wholesale 40-pound blocks of cheese climbed 1.6 percent to $2.40 a pound today on the CME, the highest since the data began in 1997.

Chicago-based sandwich chain Potbelly will increase prices to cover inflation from dairy, pork and beef products this year, chief financial officer Charles Talbot said on a Feb. 18 earnings call. Organic foods producer Annie’s Inc. also cited cheese prices last week as as part of a "tough commodity- inflation environment."